Managing rising subnational fiscal risks

Luiz de Mello and Teresa Ter-Minassian

No 46, OECD Working Papers on Fiscal Federalism from OECD Publishing

Abstract: Subnational governments face a range of fiscal risks, defined as events whose realisation leads to significant deviations of revenue and/or expenditure from budgeted amounts. Fiscal risks reflect unforeseen macroeconomic developments, as well as structural shifts in the economy, including digitalisation and climate change. Sound management of these risks requires a comprehensive framework involving their identification, analysis, mitigation, sharing or transfer, and prudent accommodation. Within this framework, subnational governments need to strengthen their capacity to manage their own risks, but national governments also have a role to play. This includes mitigating risks created by national policies, minimising moral hazard in supporting subnational governments affected by exogenous shocks, and using their legislative powers to avert excessive subnational risk-taking. Effective intergovernmental cooperation is key to the sound management of subnational fiscal risks. The paper discusses how different levels of government can work together in applying this framework to the main types of risks. It also provides some examples of good international practices in the management of risks.

Keywords: fiscal risks; fiscal sustainability; intergovernmental relations; risk management; subnational governments (search for similar items in EconPapers)
JEL-codes: H12 H70 H77 (search for similar items in EconPapers)
Date: 2024-06-13
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:oec:ctpaab:46-en

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